Levels Of Solvency Research Articles

Factors Influencing Underwriting Performance of the Life and Non-Life Insurance Markets in South Africa: Exploring for Complementarities, Nonlinearities, and Thresholds

ABSTRACT Underwriting is crucial for insurers’ performance and sustainability, yet empirical evidence on factors influencing its performance has received limited attention. Therefore, this study investigates this phenomenon considering South Africa’s life and non-life insurance sectors between 2013–2019. Using the generalized method of moments and the bootstrap quantile regression techniques for analysis, the findings show that insurance size, market share, and investment income significantly and positively impact underwriting performance. However, premium growth weakens the underwriting performance of both sectors. Also, non-life insurance shows a positive relationship for reinsurance, while life insurers present an inverse relationship. Underwriting risk negatively impacts non-life performance across quantiles, while life insurer risk was negative in higher quantiles. More so, initial solvency levels weaken underwriting performance, while extreme increase improves it, implying a direct U-shaped relationship. Hence, highly solvent insurers are more likely to succeed in underwriting operations. Additionally, market share complements return on assets in promoting underwriting performance. Policy recommendations are discussed.

EXPLORING THE RELATIONSHIP BETWEEN PREMIUM GROWTH, CLAIM EXPENSES, AND SOLVENCY: THE MEDIATING EFFECT OF PROFITABILITY

This study aims to examine the effect of premium growth and claim expenses on solvency levels with profitability as an intervening variable. This research uses a quantitative approach using secondary data. The population in this study were 18 insurance companies listed on the Indonesia Stock Exchange (IDX) in 2018-2022. The sample used amounted to 14 insurance companies (consisting of 70 data) obtained using purposive sampling method. The results showed that: (1) premium growth has no significant effect on profitability; (2) claim expense has no significant effect on profitability; (3) premium growth has no significant effect on solvency level; (4) claim expense has no significant effect on solvency level; (5) profitability has a negative and significant effect on solvency level; (6) profitability is not able to mediate the effect of premium growth on solvency level; (7) profitability is not able to mediate the effect of claim expense on solvency level.

SOLVABILITY RATIO ANALYSIS TO ASSESS THE FINANCIAL PERFORMANCE OF PT KARYA TANTRI ABADI

The aim of this research is to use the solvency ratio to test the financial performance of PT Karya Tantri Abadi. Descriptive research using a qualitative approach is the type of research used in this research. Based on research results, the financial performance of PT Karya Tantri Abadi during the period 2020 to 2022 illustrates extraordinary achievements in terms of profitability, efficient use of assets and debt management. The research results show that PT Karya Tantri Abadi has a fairly good level of solvency with relatively low DAR and DER values compared to industry standards. The company shows a tendency to increase the use of debt in its operations in 2021, but has taken steps to reduce its debt or increase its equity in 2022. In conclusion, PT Karya Tantri Abadi has good solvency and is able to meet its long-term obligations. However, companies need to continue to monitor and manage their debt carefully to maintain optimal levels of solvency.

Analysis of the liquidity, solvency and profitability of the mining companies listed on the S&P/BVL Mining Index during the 2004–2020 period.

In several countries, mining contributes more than most sectors to economic growth. But the activity is marked by cyclical behaviour, including booms in the price of metals—such as that which occurred in the period 2004-2012. Therefore, it is important for investors to identify the financial performance of companies in the sector. This study aims to analyse the levels of liquidity, solvency, and profitability of Peruvian mining companies listed on the S&P/BVL Mining Index for the period 2004–2020, given the contribution of mining to GDP growth and employment in Peru. We utilise a quantitative approach, collecting data from the companies’ financial statements through Bloomberg. The research design is non-experimental, based on a descriptive, comparative, and longitudinal approach. For the statistical analysis, descriptive statistics tests and Student’s t-test were carried out. Analysis of the results reveal that the liquidity, solvency, and profitability of this group of companies exhibited a better performance during the metal-price boom period, with a marked decrease in the following period.

The Effect of Fiscal Decentralization on Municipal Fiscal Condition: An Empirical Study of Large American Cities

Local governments’ ability to sustain a healthy fiscal structure and meet service obligations is critical in avoiding financial hardship. This study empirically tests the effects of intrastate fiscal decentralization on municipal fiscal health that is measured by cash solvency, budget solvency, and long-run solvency. The two key variables, revenue decentralization and expenditure decentralization, are constructed to represent intrastate fiscal decentralization. The panel dataset includes 100 large U.S. cities and covers fiscal years 2007 through 2016, which encompasses periods before, during, and after the Great Recession started in 2008. The model estimation is based on a two-way fixed-effect panel regression. The results show that an increased degree of state-local revenue decentralization is significantly associated with higher long-term solvency, while an increased degree of state-local expenditure decentralization leads to higher levels of cash solvency and lower levels of long-term solvency.

Knowledge transfer and entrepreneurial orientation: the mediating effect of the transactive memory system

The constant dynamism of the market forces companies to prepare and acquire knowledge and manage it properly, which in turn will allow them to achieve higher levels of modernity, stability, and solvency, thus improving their chances of survival. In this research paper, we aim to investigate the relationship between Knowledge Transfer and Entrepreneurial Orientation in light of the mediating role played by the Transactive Memory System. The Transactive Memory System is a variable that has been very little studied and understood, but which requires greater attention because it constitutes a common knowledge platform that is encoded, stored, retrieved, and exchanged among the members of the organisation to obtain specialised knowledge in the performance of tasks. To this aim, we use structural equation modelling and further analyse the mediation effect with alternative tests in a sample of 206 manufacturing MSMEs in Ecuador. Among others, the results indicate that the Transactive Memory System exerts a total mediation role between Knowledge Transfer and Entrepreneurial Orientation. Theoretical contributions and practical implications are discussed.

Pengaruh Rasio Keuangan Early Warning System Terhadap Tingkat Solvabilitas Pada Perusahaan Asuransi Yang Terdaftar di Bursa Efek Indonesia Tahun 2017-2020

Early Warning System is a tool that can be used to analyze financial statements and process them into useful information to be used as a monitoring system for the financial performance of the insurance company concerned. This study aims to examine the ratio of liquidity ratios, claims expense ratios, and the ratio of premium growth to solvency levels as proxied by Risk Based Capital (RBC). The population in this study were 16 insurance companies listed on the Indonesia Stock Exchange (IDX). The sample used is 10 companies obtained by using purposive sampling method. The data obtained from the analysis of the company's annual report obtained from the IDX's official website, namely www.idx.co.id with the data method using the classical assumption test, multiple linear regression test, hypothesis testing, and coefficient of determination test. The results of the study show that: (1) Liquidity has a positive and significant effect on risk based capital; (2) The claim expense ratio has a positive and significant effect on risk based capital; (3) Premium growth has a positive and significant effect on risk based capital. Based on the F test, liquidity, claims expense ratio, and premium growth have a positive and significant effect on risk based capital.

MAC: A Proposal for Consistent Actuarial Interest Rates in Pension Funds

ABSTRACT Objective: this article proposes the meta atuarial consistente (MAC) (consistent actuarial rate), which is a method that adjusts incompatible actuarial rates in pension funds, after investigating and proving that the rate dissociates from the general rule in current regulations (which binds this rate to the expected return of the investments of pension funds). Methodology: a sample with data from 22 defined-benefit plans was collected, and MAC was applied to produce consistent actuarial rates, after panel data methods have identified the elements that influence the definition of the actuarial rate by the pension fund board of trustees. Results: the use of MAC, adjusting actuarial rates of 2018 based on systematic biases in previous rates, enabled a positive effect that unfolds in more reliable estimates for the plans’ mathematical provision, while identifying elements that influence the determination of the annual rate, causing its non-compliance to the general rule. Conclusion: the adoption of MAC by the Brazilian supervisory authority Previc would improve the rules and provide subsidies to better adjust the contribution levels practiced in the plans, making their solvency levels more reliable, which would benefit the development of the insurance and pension market.

MAC: A Proposal for Consistent Actuarial Interest Rates in Pension Funds

ABSTRACT Objective: this article proposes the meta atuarial consistente (MAC) (consistent actuarial rate), which is a method that adjusts incompatible actuarial rates in pension funds, after investigating and proving that the rate dissociates from the general rule in current regulations (which binds this rate to the expected return of the investments of pension funds). Methodology: a sample with data from 22 defined-benefit plans was collected, and MAC was applied to produce consistent actuarial rates, after panel data methods have identified the elements that influence the definition of the actuarial rate by the pension fund board of trustees. Results: the use of MAC, adjusting actuarial rates of 2018 based on systematic biases in previous rates, enabled a positive effect that unfolds in more reliable estimates for the plans’ mathematical provision, while identifying elements that influence the determination of the annual rate, causing its non-compliance to the general rule. Conclusion: the adoption of MAC by the Brazilian supervisory authority Previc would improve the rules and provide subsidies to better adjust the contribution levels practiced in the plans, making their solvency levels more reliable, which would benefit the development of the insurance and pension market.

Liquidity of Non-financial Corporations: Evidence from Bulgaria

The financial and economic crisis years ago put the development of enterprises in Bulgaria and around the world in an uncontrollable environment that is difficult to predict, and led to significant problems with their financial condition. As a result of a rare CoVid-19 pandemic in 2020, the economic situation has become more complicated and portends déjà vu in terms of negative effects on the economy and businesses. The numerous closures of businesses and entire sectors will undoubtedly lead to serious financial consequences related to liquidity problems and excessive indebtedness of Bulgarian enterprises. The main problem that provokes this study is the lack of summarized information on the state of corporate liquidity and the solvency levels of non-financial corporations in Bulgaria. The main purpose of the article is to examine the liquidity status of non-financial corporations in Bulgaria. This analysis is needed to prevent liquidity crises and to bring out early indicators to warn and counter the risks posed by deteriorating solvency. It will be essential for the liquidity assessment to derive average industry values of the indicators to guide the companies from the sectors regarding the recommended liquidity levels to which they should strive.

THE IMPACT OF SOLVENCY AND WORKING CAPITAL ON PROFITABILITY

Every business requires working capital for its survival. A solvent company has assets that exceed its liabilities sufficiently to reinvest in its growth. Solvency refers to company's ability to fulfil its obligations. Assessment of a company's ability to pay it obligations such as to make interest and principal payments generally include analysis of the components of its financial structure. The degree of solvency in a business is measured by the relationship between the assets, liabilities and equity of a business at a given point in time. The company should determine the appropriate solvency levels in increasing profitability. The purpose of this research is to know whether solvency and working capital have an impact on profitability at CV Masindo Electric Medan. The research design used in this research is a descriptive research design with conducting financial statement analysis. Research methods used are descriptive statistic analysis with financial ratio analysis, coefficient correlation, coefficient of determination, linear regression analysis, t test and F test.This research concludes that solvency and working capital have impact on profitability at CV Masindo Electric Medan. Based on T-test, the value of Tcount is higher than Ttable. Therefore, the solvency and working capital have a significant impact on profitability at CV Masindo Electric Medan partially. Based on the F test, the value of Fcount is higher than Ftable. Therefore, the solvency and working capital have a significant impact on profitability at CV Masindo Electric Medan simultaneously. The profitability can be explained by working capital and solvency in 99.8%, while the remaining in 0.2% is explained by other factors. Based on the working capital analysis, there is decrease in working capital in the year 2012-2016. It shows that the company doesn't conduct working capital management appropriately. Based on solvency analysis, there is increasing insolvency in the year 2012-2016. The company has limitations from internal fund from profit and capital from the owner. Therefore, the company finds a way to conducting business with external funds such as from account payable and bank loan. Based on profitability analysis, it can be known that there is decreasing of profitability in year 2012-2016. The company cannot increase the sales price to a high level because there is low-profit margin. Keywords: Solvency, Working Capital and Profitability

Determining the Banking Solvency Risk in Times of COVID-19 through Gram-Charlier Expansions

This paper proposes risk measures for bank solvency by accurately measuring the solvency risk components. These measures consider the minimum regulatory solvency levels and banks’ risk appetite level and risk profile. For this purpose, we used semi-nonparametric statistics to model stylized facts of the risk distribution, particularly the high-order moments of the Solvency Decline Rate, the Tier Decline Rate, and the Portfolio Growth Rate variables. Additionally, these risk measures can be used to measure the risk of regulatory intervention and to define policies that establish the minimum solvency levels required by banking regulators by estimating the Quantile Risk Metrics. As a case study, we collected data on the solvency indicators of the Colombian banking system, which adapts to the standards established by the Basel Committee. According to the results, the liquidity injection measures implemented in response to the needs generated by the COVID-19 pandemic led to an increase in the levels of the risk portfolio in the Colombian banking system, which exceeded the 99th percentile of the probability distribution of monthly portfolio value changes.

Solvency and wholesale funding cost interactions at UK banks

We study the interaction between solvency and funding costs at UK banks. We use the market-based leverage ratio as a proxy for market participants’ perceptions of bank solvency. We investigate the impact that changes in this ratio have on banks’ CDS premia, which are a proxy for their marginal cost of wholesale funding. We find that a negative shock to market participants’ perception of banks’ solvency is associated with an increase in banks’ marginal cost of wholesale funding. We find evidence that this negative relationship is nonlinear, i.e. the responsiveness of funding costs to a shock to solvency is greater at lower initial levels of solvency.

Does the financial structure of banks influence the bank lending channel of monetary policy? Evidence from Colombia

PurposeThis paper tests the impact of the financial structure of banks on the bank lending channel of monetary policy transmission in Colombia.Design/methodology/approachWe use a monthly panel of 51 commercial banks for the period 1996:4–2014:8.FindingsAn increase in the monetary policy interest rate significantly reduces bank loan growth. The magnitude of this effect depends on banks’ financial structure. Additionally, we identify an asymmetric effect in which the bank lending channel is stronger in monetary contractions than during expansions. We show that this behavior is due to the heterogeneous response of banks with different levels of solvency. This finding has important implications for the design and implementation of monetary policy and coordination of central bank’s policy with key economic agents.Practical implicationsThe fact that the BLC is stronger in times of monetary contraction is quite interesting for central banking, as it shows that monetary policy transmission is harder during macroeconomic downturns. When investment plans are depressed, monetary stimulus may prove insufficient to reactivate credit demand. This has proven to be true in advanced economies after a strong recession and our results suggest that is also true in emerging market economies for economic downturns in general. Central banks may have to provide stronger shocks to reactivate private credit when the economy is facing a slow economic recovery.Originality/valueOur findings point out that an increase in the monetary policy interest rate significantly reduces bank loan growth. However, the magnitude of this effect critically depends on two aspects. First, bank heterogeneity matters. Particularly, the loan supply of better capitalized banks is less sensitive to monetary policy shocks. Second, the response of credit supply to shifts in short-term interest rates critically depends on the monetary policy stance. The BLC is stronger in times of monetary contraction than during expansions. Moreover, we show that this asymmetric behavior is due to the heterogeneous response of banks with different levels of solvency to the monetary policy stance.

Goal programming to evaluate the profile of the most profitable insurers: an application to the Spanish insurance industry

AbstractThis paper applies a multiobjective goal programming (GP) model to define the profile of the most profitable insurers by focusing on 14 firm‐decision variables and considering different scenarios resulting from the exogenous change in interest rate and GDP per capita growth variables. We consider a detailed database of Spanish non‐life insurers over the period 2003–2012 taking into account two dimensions of insurers’ results: underwriting results and investment results. A prior econometric analysis is used to find out relevant relations among the variables. Next, a GP model is formulated on the basis of the relationships obtained. The model is tested in a robust environment, allowing changes in the coefficients of the objective functions, and for several scenarios regarding crisis/noncrisis situations and changes in interest rates. We find that having the stock organizational form, being an unaffiliated single company and maintaining low levels of investment risk, leverage, and regulatory solvency are recommended for result optimization. Growth and reinsurance utilization are not advisable for optimizing the results, whereas size should be positively emphasized even more in instability periods and when interest rates increase. The results also show that the optimal level of the diversification/specialization strategy depends on economic conditions. More specialization is advisable as negative changes in interest rates increase. However, we find that the optimal values of the diversification variable are higher for the crisis scenarios compared to the corresponding noncrisis scenarios, suggesting that diversification creates value in crisis. Further sensitivity analyses show the soundness of the conclusions obtained.

Pengaruh Ukuran Perusahaan, Jenis Opini Auditor, Laba/Rugi Operasi, Profitabilitas dan Solvabilitas Terhadap Audit Delay Sub Sektor Rokok yang Terdaftar di Bursa Efek Indonesia

Financial statements can be said to be relevant if the delivery is timely. This timeliness can be seen from audit delay, namely the length of reporting of financial statements between the closing date of the book until the date of the auditor's report. The purpose of this study was to determine the effect of company size variables, auditor opinion types, operating profit/loss, profitability, and solvency levels, on audit delay in cigarette companies listed on the Indonesia Stock Exchange in 2011-2017. This type of research is a qualitative descriptive. The type of data used is secondary data obtained from the Indonesia Stock Exchange (IDX) by taking financial statement data. The analysis method uses multiple linear regression analysis. The results obtained in this study indicate that simultaneously the five variables have a significant effect of 42% on audit delay. And partially from the 5 variables that affect audit delay is the level of profitability with a significance value of t 0.018 which is less than 0.5%, while the others have no effect.

Optimal taxation in non-life insurance markets

Insurance markets all over the world are subject to taxes, which can be collected through various tax schemes. The most commonly used tax schemes in non-life insurance include taxes on the premium income as well as taxes on corporate profits. The mix of those taxes differs substantially across regions. In Europe, for instance, premium taxes are at much higher levels than those in the United States. This paper shows that the particular mix of taxes matters for insurance companies’ solvency levels and insurance premiums, even when the expected tax revenue is fixed. The analysis provides comparative statics that reveal which combination of premium taxation and corporate taxation maximizes welfare. Numerical examples suggest that relatively high premium tax rates are welfare optimal. In general, a low volatility of insurance claims, a strong reaction of insurance demand to insurer default risk, as well as substantial agency issues between shareholders and management make corporate taxation more favorable in comparison to premium taxation.

POLITIZACIÓN Y PERICIA FINANCIERA EN LAS CAJAS DE AHORROS ESPAÑOLAS. PATRONES EN LA CONFIGURACIÓN DE SUS CONSEJOS

This study examines the politicization and financial knowledge-experience of the boards of directors of Spanish savings banks. To do this, we build a database with the biographic information of directors during the period 2004-2010. The results of the cluster analysis show the existence of four types of boards, depending on the politicization and the financial expertise of its members. Furthermore, we find that savings banks with higher financial expertise in their boards have higher levels of financial solvency.

PENGARUH UKURAN PERUSAHAAN, SOLVABILITAS, LABA/(RUGI) OPERASI, DAN OPINI AUDITOR TERHADAP AUDIT DELAY

Time difference between financial statement and auditing opinion date indicates the amount of time needed in auditing settlement period. This condition can affect the punctuation of information published and will influence market reaction towards the lengthy information. The study aims to determine the factors that influence audit delay mining sector companies listed at Indonesian Stock Exchange for 2010-2012 period. The factors studied are delay is estimated to affect company size, solvency levels, operation loss and profit, and auditor’s opinion. 
 The population in this study is the mining company’s financial statement listed on the Indonesian Stock Exchange from 2010-2012. Sampling technique with selected sampling by purposive sampling. Of the 40 companies that are mining at Indonesian Stock Exchange from year 2010-2012, there were only 14 companies that meet the characteristics of the samples that have been determined. Data analysis conducted with multiple linear regression model. 
 The results of the study were company size, solvency, operation loss and profit dan auditor’s opinion have significant influence to audit delay simultaneously. Operation loss and profit and auditor’s opinion have significant influence to audit delay partially. But company size and solvency not have significant influence to audit delay partially.

Solvency and Wholesale Funding Cost Interactions at UK Banks

We study the interaction between solvency and funding costs at UK banks. We use the market-based leverage ratio as a proxy for market participants’ perceptions of bank solvency. We investigate the impact that changes in this ratio have on banks’ CDS premia, which are a proxy for their marginal cost of wholesale funding. We find that a negative shock to market participants’ perception of banks’ solvency leads to an increase in banks’ marginal cost of wholesale funding. We find evidence that this negative relationship is nonlinear, i.e. the responsiveness of funding costs to a shock to solvency is greater at lower initial levels of solvency.